Rivian Automotive is facing a challenging start to the New Year, grappling with a significant recall and underwhelming delivery numbers. The electric-vehicle company, known for its electrified trucks and SUVs, announced a recall of nearly 7,800 R1S and R1T EVs, affecting vehicles manufactured between June 2021 and October 2022.
The recall was prompted by a letter from the National Highway Traffic Safety Administration (NHTSA), which stated, “the accelerator pedal may not detect when the driver releases the pedal, failing to activate ‘auto-hold’ or ‘park’ as intended.” This malfunction could lead to unintended vehicle movement, significantly increasing the risk of a crash. Rivian has deployed a software update to address this issue, urging customers to install it. Notification letters to owners are expected to be mailed by February 16.
On the delivery front, Rivian reported delivering 13,972 vehicles from October through December. While these numbers were in line with Wall Street’s forecasts, they represented a 10.2% decrease from the third quarter of 2023. This decline contrasts sharply with Tesla’s (TSLA) record delivery of 484,507 new cars in the same period, highlighting the competitive pressure Rivian faces.. This decline in deliveries, despite surpassing annual production goals, has led to concerns about softening demand for Rivian’s premium EVs. The company’s shares also experienced a downturn, reflecting investor wariness.
Despite these challenges, Baird analyst Ben Kallo recently designated Rivian stock as a “best idea” for 2024. He noted Rivian’s continued supply constraints relative to demand and anticipates production improvements and supply-chain optimizations as potential levers for margin upside. Kallo expects Rivian to achieve gross-margin positivity in the fourth quarter. Similarly, Goldman Sachs analyst Mark Delaney raised his price target on Rivian, focusing on the company’s 2024 volume guidance, its ability to reach a positive gross margin, and its competitiveness in a growing market.
Rivian’s stock journey has been a rollercoaster since its debut on November 10, 2021, with an initial price offering of $78 a share, closing at $100.73 on its first day. However, the stock faced challenges in October when Rivian announced plans to issue $1.5 billion in convertible bonds to support its R2 vehicle and the $5 billion Georgia plant.
The slowing demand for high-priced EVs is a challenge that many automakers are facing. Rivian, with its consumer vehicles (R1T and R1S) selling for over $80,000 on average, has managed to avoid price cuts so far. However, the cost of building these vehicles remains a significant barrier to profitability. In the second quarter, Rivian lost $32,495 on every vehicle built, although it managed to reduce this loss in the company’s third quarter. If delivery trends continue downward, Rivian might have to reconsider its pricing strategy, which could further pressure down its margins.
Rivian’s start to the New Year underscores the complexities of the EV market. While facing recall challenges and delivery pressures, the company remains a focus of investor interest and analyst optimism. The company’s ability to navigate these hurdles and capitalize on its potential will be crucial in the competitive and rapidly evolving EV landscape. By effectively managing these aspects, Rivian can reinforce its position in the EV market.
